Stocks continue to climb

Thursday

Nov 29, 2007 at 12:01 AM

The Dow showed its biggest two-day point gain in five years.

The Associated Press

NEW YORK - Wall Street barreled higher Wednesday for the second day in a row, giving the Dow Jones industrial average its biggest two-day point gain in five years after a Federal Reserve official hinted that the central bank may lower interest rates again.

Investors' renewed hopes for a rate cut added to their relief that companies that made losing bets on subprime mortgages, such as Citigroup Inc. and Freddie Mac, are coming up with ways to raise cash. The market was clearly optimistic that at least some of the damage from the months-long credit crisis was finally being mitigated.

However, Wall Street has been fickle in recent months, and no one is betting that the mortgage crisis that tripped up the nation's financial industry this year is over, or that the market's huge gains so far this week will stick. Despite its spectacular advance this week, the Dow remains more than 6 percent below its Oct. 9 record close over 14,000, having plunged due to worries that the housing market's slump will lead to further losses for banks, and the Fed can't keep slashing rates.

"The market's perception of whether the Fed cuts or not really changes by the day,'' said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "We still have more data to come.''

Early Wednesday, Fed Vice Chairman Donald Kohn told the Council on Foreign Relations that recent financial turbulence has reversed some of the improvement seen in markets in previous weeks, and could squeeze credit for households and businesses. He said tight financial conditions may merit "offsetting'' policy from the central bank.

The possibility for lower rates seemed more compelling to investors than persistent concerns about a slowdown in economic growth. The Fed continues to inject billions of dollars into the financial system through repurchase agreements to help calm the shaky markets.

The Dow soared 331.01, or 2.55 percent, to 13,289.45, adding to the blue chip index's 215 point gain on Tuesday and giving the market's best known indicator its largest two-day point gain since Oct. 11, 2002.